Capital is the lifeblood of prosperity, but New Zealand doesn’t have enough, says the managing director of a leading private financial services provider.

Moreover, General Capital’s Brent King says that in today’s unprecedented economic uncertainty, a return to basic economic principles is essential for New Zealand to escape inflation and stagnation.

“Globally we’re seeing a mad grab for assets, with Greenland and even Canada on [US President] Trump’s agenda. But here at home, we’re seeing the opposite, with offshoring of the capital so desperately needed for the development of the infrastructure and services necessary to improve our Gross Domestic Product,” notes General Capital’s managing director.

King says in any situation access to superior capital is a massive and consistent advantage. “It’s virtually impossible to imagine any circumstance in which this isn’t the case. Anyone with whom you trade and who has an advantage of capital, has the edge.”

As a small nation, this renders New Zealand’s position on the world stage precarious for a very simple reason, says King. Scale.

“Let’s take wine. We produce good wine here, but we don’t have the volume to meet the demand of major markets. Even with our good Chardonnay, we can’t match the volume coming out of the Sonoma Valley. And exporting that wine might require some sort of a trade agreement; in this aspect again, capital and scale matter. We might manage maybe four people working on a deal. The counterparty? Ten or more.”

King says New Zealand is simply outgunned and outmanoeuvred.

What bothers him more is that in an environment of scarce and highly mobile capital, the country appears to be exporting that which it does have. He points to the recent sale of Auckland Airport shares by the Auckland Council as a case in point. “What became of the $1.3 billion proceeds of that sale? It’s gone into the Auckland Future Fund, which has sent it to be invested in New York in the hope that the returns might provide future capital.”

Other perceived egregious examples of capital frittered away under successive governments include the Auckland Light Rail fiasco, which has consumed at least $228 million with no track yet laid, $50 million on the failed Auckland Harbour Bridge cycle crossing, and the abrupt cancellation of the Cook Strait ferries with little to no negotiation leaving a bill approaching half a billion dollars for zero return.

He says depriving the country of capital has consequences. “We’re not Switzerland; we don’t have the books to justify sending money abroad which should be invested locally. On top of that, you have NZ Super and even individual financial advisers constantly looking to place investments abroad rather than locally.”

While conceding that in a free market, individuals and private businesses should and do enjoy the discretion to invest as they see fit, King says the role of government should be establishing the conditions which make New Zealand an attractive destination for investment.

Those conditions are clearly not in place, despite recent moves to introduce a Digital Nomad visa, and the revision of the Investor Plus Visa seeking to entice the wealthy to New Zealand.

“We have to look after the nation’s capital better. We have to grow, and for that to happen, the right conditions are required. Right now, we’re going backwards. There isn’t any growth, despite a promised growth agenda. People are emigrating and taking their money with them.”

He says politically, more action is required, and that action can’t wait. “We need to move faster. We have agriculture, we have minerals, we have oceans. We need to understand how, for example, Ireland managed it [when it was known as the Celtic Tiger with an economic boom in the late 1990s to 2000s].”

Referencing the country’s lack of scale again, King says a small population should imply a reduced amount of capital to generate returns which he believes are entirely feasible. “There’s only around 6 million of us. That tells us we only need a set amount of money to achieve desirable outcomes – you don’t need vast capital which might be necessary to gain momentum in larger markets.”

Finally, says King, New Zealand must learn to live within its means, as a nation running deficits is compelled to look elsewhere for capital.

“Neither councils nor the central government should be in the red. On a local level, there isn’t a single council reducing rates, because they are spending more than they bring in. It’s the same on a national level. And that’s why we beg Malaysian tycoons to set up roads here, which are then tolled back to the citizens of this country. It’s outrageous tithing and a worst-case scenario.”

For more information visit: generalfinance.co.nz